Why New York City Property Is Only Going Up

Let me stick my neck out on the future direction of housing prices in the US. I think that we’re in the middle of a mildly chaotic move from a pretty flat price distribution to one which looks much more like a power law. Or, to put it another way, housing inequality is on the increase. The whole concept of an “average” or “median” house is going to become useless, because people are increasingly not paying for the house so much as they’re paying for its location. Specifically, New York City is a unique property market, which can and will continue to appreciate even if the rest of the US sees a significant slowdown.

In the first quarter of this year, the New York City housing market boomed even as the rest of the country saw some nasty falls in house prices. And I suspect that the same trend might continue for quite a while. Partly, that’s because precious few Manhattan homeowners have subprime mortgages. But on a much larger scale, it’s because New York is one of a handful of global cities which are the winners in the location stakes. The set of things you buy when you buy an apartment here can’t be measured in square feet.

At 11:18am this morning, I got an email which told me that the Committee on Global Thought at Columbia University was having a discussion about the economics of climate change. The discussants? Jeff Sachs, Joe Stiglitz, and Nick Stern. Said discussion was happening at 4pm, and was free and open to the public. Of course, I went. I was even fortunate enough to be able to put to Stern directly my single biggest question/problem on the subject of climate change. He gave a great answer — and then Sachs answered the question too, and then Stiglitz gave his answer, and then Stern came back and added to his answer. (I’ll blog it in a minute.) It was a wonderful moment, and I thank New York City for it.

After the event, I bumped into a friend of mine who I hadn’t seen in a while, and we had an impromptu couple of bottles of wine between four of us at a cafe on the Upper West Side — her, me, and two very interesting scientists. I also got caught up on her cousin, who I’d lost track of, and who, it so happens, is arriving in New York tomorrow for a week.

The climate change event took place one week to the day after I went out for lunch with Nassim Nicholas Taleb, and had a fascinating and wide-ranging conversation with him. In between, I went to the movies, discovered a cool underground club in Dumbo, had a long conversation about transfiguration with a chap called Victor from Malta, hosted an impromptu barbecue where my friend Amy met my upstairs neighbor Dan, looked after a dog named Coco for a few days, went to a Mozart opera directed by a South African artist, and suffered a hard drive failure which was made much easier to bear by the fact that the Apple Store is in easy walking distance. This morning, before heading uptown to the Columbia event, I helped Dan and Amy move the couch he’s been trying to get rid of for ages into the back of a pickup truck belonging to another friend.

On the subway uptown, I listened to Decasia on my iPod, while reading Nick Paumgarten’s article about commuting in the New Yorker:

“I was shocked to find how robust a predictor of social isolation commuting is,” Robert Putnam, a Harvard political scientist, told me. (Putnam wrote the best-seller “Bowling Alone,” about the disintegration of American civic life.) “There’s a simple rule of thumb: Every ten minutes of commuting results in ten per cent fewer social connections. Commuting is connected to social isolation, which causes unhappiness.”

I have a wonderful job: blogging is something I can and will do from anywhere, and my commute literally couldn’t be any shorter, since I work from home. On its face, it’s quite a lonely lifestyle: I can very easily get up in the morning and never leave the house or have any visitors all day. I have no colleagues to gossip with over the water cooler, and I’m not paying a premium to live near my work. Given the economics of commuting, as laid out by Paumgarten, I should be jumping at the opportunity to sell my convenient-for-a-commuter place in Manhattan and move out to some bucolic rural town.

But of course I can’t imagine living anywhere other than Manhattan, because it’s unique in so many ways. Everything I’ve done over the past week is just as much a function of where I live as it is a function of who I am. And I’m pretty sure I would never have got my blogging gigs, first at RGE and then at Portfolio, had I lived anywhere else. Robert Putnam is right, it would seem: the density and vibrancy of New York forces social connections onto people whether they like it or not. And it’s impossible to replicate.

Anybody can build a suburban McMansion; if it has a lot of square feet, and money is cheap, then it might well sell for a lot of money. On the other hand, if demand for space goes down, or money gets more expensive, then the value of large homes in the suburbs is certain to fall. New York is different. When people buy here, they’re buying something you can’t get anywhere else. If you want to live in one suburb, you might well make do with another suburb. But if you want to live in New York, nowhere else will do.

And because New York is a global town, demand for property here is global as well. Every time the dollar falls, New York property becomes that much more appealing to millions of Europeans and Asians who have visited and dreamed of living here: it’s not even expensive, by London or Hong Kong standards.

I wouldn’t be at all surprised were someone to tell me that Sachs, Stiglitz and Stern were all having dinner tonight with Bill Clinton, maybe at the house of Mike Bloomberg or George Soros. It’s the kind of thing which happens in New York — and in precious few other places. Davos, maybe, once a year. As such people move to New York, other such people follow them here, in a self-perpetuating virtuous cycle.

Taleb says, in his latest book, that there’s no particular reason why New York rose and Baltimore fell. But now it has happened, it can’t be stopped. Baltimore will never again be a leading global city. And — I feel comfortable in saying — New York will never again (not in the next few decades, anyway) be a crime-addled drug den like it was in the 1980s. The road from there to here was not foreseeable. But the road ahead is clear: New York City is pulling away from the pack, and the bigger a lead it takes, the faster it goes.

7 Responses to Why New York City Property Is Only Going Up

Great post, Felix. It does imply the question, “What is Stefan doing in Cairo, for God’s sake?”

I think the answer is obvious, considering your mention of the power law: I’m chasing the long tail. Now that we can indeed blog from anywhere, there are only two places we should do it from: New York City, and as far away as possible from New York City — in Cairo, Darfur, the Karakoram, South Georgia, Tasmania, Svalbard and all other such places, provided they have internet (and all those above do).

So I second your disdain for the suburbs, they are the worst of all possible worlds: high on square footage, low on connectivity.

“When people buy here, they’re buying something you can’t get anywhere else. If you want to live in one suburb, you might well make do with another suburb. But if you want to live in New York, nowhere else will do.”

– This idea of owning something desirable, something that can’t easily be replicated, seems to be part of a much wider, global trend. It’s not just well located housing that’s in demand, but scarcity is now more sought after than ever before; there are booming markets everywhere, from the art market to specialist furniture.

With growing inequality, the segment of the population who seek these items is certainly wealthier than ever before.

And so, pray tell, what DID Stiglitz et al actually say? I am on tenterhooks.

Stiglitz and others aside, surely only some of what you’ve done is a function of where you live, no? Sure NY is a great city, but we can all tell stories of giddy social lives, but it’s not necessarily a function of urban location. And it’s certainly not down to any vicarious pleasure at the thought of Bill Clinton might be a mile or so away, that’s just star struck madness.

I live on the edge of the Pennines between Manchester and Leeds and certainly don’t feel any loss of connectivity, if anything I feel better connected than ever.

Tonight it’s the theatre, Saturday is the Andy Goldsworthy sculpture park and dinner with friends at a great rural restaurant, Sunday is watching the Black Rebel Motorcyle Club. Bill Clinton could be having dinner with Albert Tatlock in my village and it wouldn’t make one jot of difference to my enjoyment of the above.

Valid points, YET there are still only so many folks for whom “pin money” is measured in the millions. As a result, contrary to your assertion, in the absence of the really wealthy Russians and Middle Easterners forsaking London for the apple, “elevated cyclical amplitude” IMHO will remain the norm on the upper tail of the residential real estate market.

This feels like the classic “it’s different here/this time” post. You take supply and demand into consideration but completely ignore price. I fail to understand how people use this justification for already high and ever increasingly higher prices. Demand is high and they are not creating anymore land, thus prices won’t decline.

Allow me to illustrate one fatal flaw in this logic: What if the price of a 1-bed condo in NYC shoots up to a billion dollars next year? Will the price still continue to rise beyond this point? Apparently it will simply because there are nice restaurants nearby…

You can try to believe that NYC operates in vacuum but it doesn’t. There are alternatives, even if you can’t imagine them. And if the cost to borrow rises significantly, prices will fall.